Saudi Arabia, Oman hit with S&P downgrade

Standard & Poor’s has downgraded the credit ratings of Saudi Arabia, Oman and Bahrain, in response to the plummeting oil price.

However, the neighbouring Middle Eastern states of Qatar, Abu Dhabi and Kuwait, as well oil giant Russia, retained their current ratings.

The downgrades come days after S&P downgraded the credit ratings of British Crown Dependencies Jersey and Guernsey, because of concerns over what the credit agency said was the G10’s “rising focus” on low-tax regimes.

Saudi Arabia’s credit rating is now A-/A-2, down from A+/A-1, with a “stable” outlook, meaning S&P is not currently considering a further downgrade. The ratings agency said it expects the oil price over the next three years to be around $20 a barrel, adding: “In our view, the decline in oil prices will have a marked and lasting impact on Saudi Arabia’s fiscal and economic indicators, given its high dependence on oil.”

Oman, meanwhile, was downgraded to BBB-/A-3, while Bahrain was downgraded to BB/B from BBB-/A-3, both, again, because of the slide in oil prices. Both were put on “stable” outlook.

Kuwait, Abu Dhabi and Russia unchanged

Despite Kuwait’s reliance on oil, S&P said it had kept its credit rating at AA/A-1+ because the nation has built up “very large fiscal and external net asset positions over many years, which will continue to help it weather the current low oil price environment.” Abu Dhabi also retained its AA/A+1 rating thanks to its “large net asset position”.

Russia retained its BB+/B (foreign currency) and BBB-/A-3 (local currency ratings), but was put on a “negative” outlook, reflecting S&P’s view that “fiscal buffers could deteriorate faster than we currently expect, as well as that we could lower the ratings if geopolitical events were to result in foreign governments’ significantly tightening the sanctions regime applied to Russia.”

Jersey and Guernsey

The oil price had nothing to do with last week’s downgrades of Jersey and Guernsey, which both went from AA+ to AA, and placed both on “negative” outlook.

In both cases, S&P said: “We have growing concerns that increasing regulatory complexity and demands, amid the G10’s rising focus on low-tax regimes, will put pressure on [Jersey’s and Guernsey’s] financial services economy and low-tax regime.”

Explaining its decision to place the two jurisdictions on negative outlook, S&P pointed to further “downside risks” of a British departure from the European Union.

While S&P was generally pessimistic, it acknowledged both jurisdictions’ “track record of complying with international transparency standards and anti-money laundering initiatives”.

ABOUT THE AUTHOR
James Fernyhough
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